Unveiling the Retail Investor Led ETF Surge In Australia

The Exchange Traded Fund (ETF) landscape in Australia has witnessed remarkable evolution and substantial expansion, particularly within the last decade.

Since the inception of the first ETF on the ASX in 2001, there has been an explosion of listings spanning diverse asset classes, according to a report compiled by Computershare.

In Australia, the majority of ETF holdings on the share market are directly owned by investors, facilitated through online brokers, fintech platforms, or robo-advisors.

This differs from global markets where ETFs are often held via intermediaries such as brokers.

This unique setup provides Australian ETF issuers with a distinct opportunity to cultivate investor loyalty and tailor products to retail investors.

However, ‘Not knowing if product providers would act in my best interest’ was a perception held by over 30% of investors

Retail investors lead the way

Retail investors have emerged as the driving force behind this growth, constituting over 70% of all ETF investors, a figure significantly higher than any other investor category.

Source: Computershare

This surge represents a staggering 230% increase, fueled by factors such as enhanced accessibility through retail trading platforms and fee reductions by major issuers, rendering ETFs increasingly appealing to a wider investor base.

Notably, 61.1% of retail investors maintain ETF portfolios valued at less than $10,000, with an average of 1.7 ETFs per investor.

However, this average climbs to 3.4 when considering custodian portfolios.

The tenure of ETF investments averages at 787 days, with currency, mid-cap, and commodity ETFs exhibiting the highest churn rates, likely influenced by market volatilities such as geopolitics and interest rates.

The introduction of Spot Bitcoin ETFs in the U.S. and their growth in Australia may further impact churn rates in this category.

As retail investors continue to play a pivotal role in the ETF market due to trading ease and reduced fees, competition among providers is expected to escalate, leading to fee reductions and expanded choices for investors.

Issuer challenge to penetrate retail investors

However, issuers face the challenge of penetrating both the SMSF and retail demographics, given their fragmented nature.

An ASX Investor Study 2023 highlighted the challenge for ETF issuers. Almost 30% of investors surveyed highlighted, “Not knowing if product providers would act in my best interest” as a reason not to invest.

A unique integrated platform like JustStocks Compare Products, with its convergence of retail and high-net-worth investors following stocks, presents an opportunity for issuers to leverage their outreach and engagement strategies effectively.

 

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